**What is throughput rate? Throughput rate****measures the rate at which units move through the production process from start to finish**. The unit in a throughput rate calculation can be any item that is relevant for a particular business, whether that is tangible or intangible.## Process Analysis Little’s Law (Video 9)

## What are the components of throughput rate?

Throughput rate is calculated using inventory and flow time. When calculating throughput for business purposes, the terms flow and inventory have a specific meaning that differs from their common usage.

**Inventory**

The number of units used in a business’ operations at any given time is referred to as inventory for the purposes of calculating throughput rate. For instance, a nail salon’s customer list would include both clients who are currently being served and those who are waiting to be served. This definition of inventory differs from the one used in accounting, which limits it to the number of units in existence at any given time. Only those customers who are being served at any given time would be included in the accounting inventory for the nail salon.

**Flow time**

The length of time a product spends in the production process, from beginning to end, is referred to as flow time. This is sometimes also referred to as processing time. A product may pass through a company’s operations in more than one way. Use the maximum amount of time that a product can spend in the production process in this situation.

## What is throughput rate?

The throughput rate gauges how quickly units pass from beginning to end of the production process. Any good or service that is important to a specific business can be used as the unit in a throughput rate calculation, whether it is tangible or intangible. Shoes sold per minute or customers served per hour are two examples of individual physical items, customers, or interactions that may be included in a throughput calculation. Businesses can make decisions about operations that reduce overhead and increase revenue by determining throughput rate.

## What is the formula for throughput rate?

The formula for calculating throughput is:

I=R*T

I stands for inventory, R for throughput rate, and T for time in this formula. Throughput rate, or R, is the desired outcome, so you can rewrite the formula by solving for R as follows:

R=I/T

## How to calculate throughput rate

Due to the possibility that you are counting various types of inventory and measuring over various time periods, the components of throughput rate may differ. However, the steps that are typically taken when calculating throughput rate are as follows:

**1. Measure inventory**

Keep in mind that inventory refers to all of the units that are engaged in the operations cycle at any given time in the context of throughput rate. Items still in production as well as those that are available for sale are included. Customers who are being served as well as those who are waiting would be counted in your inventory of customers. You’ll use the symbol I to represent this number in your throughput rate calculation. For instance, if you have 300 party hats in total, both on hand and being produced, I would equal 300.

**2. Decide on a unit of time**

Throughput rate is calculated over time as a function of business units. You might be interested in total units over the course of a second, a minute, an hour, or another unit of time, depending on the type of information you’re seeking. T will be used to represent this time period in your throughput equation. For instance, T=8 if you want to calculate the quantity of hamburgers produced and sold during a 8-hour shift.

**3. Set up your equation**

Simply divide the inventory figure by the desired amount of time once you have determined your inventory and the desired time frame. For instance, you would set up your equation as R(throughput rate)=10 and customers (inventory) / 2 hours (time) if you found that you had 10 customers waiting and being served over the course of two hours. Your throughput rate in this instance would be equal to five customers per hour.

**4. Analyze your results**

The best use of throughput rate data is when operations management experts and other business leaders use it to evaluate a company’s effectiveness. You might discover that a throughput rate analysis is relative because every business accommodates a different set of operational elements depending on its size, overhead, and operating costs. Throughput data can be internally interpreted by comparing one day to the next or business units in various locations. If data on throughput rates for businesses in your industry are available, you could also make that comparison.

## Example throughput rate calculations

When figuring out your own company’s throughput rate, take into account the examples below:

**Example 1**

A cafe owner is curious about their throughput rate for coffee drinks during a 12-hour period. They count the drinks produced during that time period and find that 300 coffee drinks were produced and sold. I (inventory) equals 300 drinks in this example, and T (time) equals 12 hours. The cafe owner would divide inventory by time, such as 300 drinks divided by 12 hours, to determine throughput. 300/12 = 25. Their throughput rate is 25 drinks per hour.

**Example 2**

A factory manager is curious about the rate at which bolts are produced each second. They are aware that 3000 bolts are produced and stored simultaneously every minute. I (inventory) = 3000 and T (time) = 60 in this illustration. They can calculate their throughput rate to be 50 bolts per second using the formula R (throughput rate) = 3000 bolts divided by 60 seconds.

**Example 3**

The manager of a cell phone store is aware that 20 customers come in during a four-hour period, wait in line for assistance, and then receive service before leaving. If they want to know their throughput rate, they can calculate it as five customers per hour by dividing their inventory (20 customers) by the time allotted (4 hours).

## FAQ

**How do you calculate throughput rate?**

**How to Calculate Throughput Rates**

- Throughput is calculated as follows: Total good units produced / time
- Line efficiency = . 90 x . 93 x . 92 = . 77 or 77 percent efficiency for the line itself.
- Line throughput = 90 pieces per hour x . 77 = 69 pieces per hour.

**What is throughput with example?**

The number of units that a production process can produce in a specific amount of time is known as throughput. For instance, if an eight-hour shift can produce 800 units, the production process can produce 100 units per hour.

**How do you calculate throughput per minute?**

Process throughput gauges how much of a finished good a process produces in a predetermined amount of time. In conventional Kanban systems, it’s the quantity of finished cards in a given day, week, or iteration. Process throughput, also known as flow rate, is directly related to cycle time, which is the amount of time needed to complete a process.